Mizrahi Tefahot Bank Ltd. (MZTF) Q4 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank Ltd. Fourth Quarter 2025 Business Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, February 26, 2026. With us on the line today are Mr. Adi Shachaf, CFO; and Mr. Menahem Aviv, Chief Accountant. We would like to draw your attention to Slide #1 of the financial statement for the fourth quarter 2025 presentation, which includes general comments regarding legal responsibility, including debt. The information contained in the presentation constitutes information from the bank's 2025 annual and quarterly reports and/or immediate reports as well as the periodic quarterly and annual reports and/or immediate reports published by the bank in the previous years. Accordingly, the information contained in the presentation is only partial and is not exhaustive and does not include the full details regarding the bank and its operations or regarding the risk factors involved in its activity and certainly does not replace the information included in the periodic annual and/or quarterly or immediate reports published by the bank. In order to receive the full picture regarding the bank's 2025 annual and quarterly reports, the aforesaid reports should be perused fully as published to the public. The bank's results in practice may be significantly different from those included in the forecasting information as a result of a large number of factors, including, inter alia changes in the domestic and global equity markets, macroeconomic changes, geopolitical changes, legislation and regulation changes and other changes that are not under the bank's control, which may lead to the estimations not realizing and/or to changes in the business plans. The forecasting information may change subject to risks and uncertainty due to being based on the management's estimations regarding future events, which include, inter alia, global and local economic development forecast, particularly regarding the economic situation in the market, including the effects of macroeconomic and geopolitical conditions, expectations for changes and developments in the currency and equity markets, forecasts related to other various factors affecting exposure and financial risks, forecasts with respect to changes to borrowers' financial strength, public preferences, changes in legislations and provisions of regulators, competitive behavior, the status of the bank's perception, technological developments and human resources developments. Mr. Shachaf, would you like to begin?

Thanks. Welcome all to the Mizrahi Tefahot 2025 Annual Analyst Call. As you all know, the last 2 years were very unusual for Israel. From the first day of the war, the bank has taken a pro-client approach, trying to offer immediate relief to its clients beyond the mandatory relief plan of the Bank of Israel while adapting the COVID experience and best practice to the current situation. As for the bank, it is much more boring, as you can see from the report and the results. I think the most conspicuous item in this report is a very strong credit growth. This growth is across the board along most of the asset classes, including mortgages, corporate and middle market and is part of our strategic plan. And we think that this growth should help us to create a nice starting point for 2026. We think that our credit metrics reflect a balanced credit portfolio with adequate risk management. As you can see, provisioning was relatively standard for this period. And as for the other items, I would like to use this call to further highlight a couple of points. First, maybe the CPI contribution to financing revenues is traditionally low in Q4, and that was also the case this time with a negative CPI for the quarter. On top of the credit growth, we also witnessed a healthy growth in commissions. We think that the net profit and the return on equity reflects the strong balance sheet and the good efficiency ratio. On the expense side, you can see the effective cost control that enables us to run the business in an efficient way. As always, salaries are also affected from variable remuneration related to the bank's results. It is also very noticeable that the results have been reached despite the relative extra tax Israeli banks are paying in 2025 and despite the extensive Bank of Israel client relief outline. Our implementation of the outline is targeting more financing interest paying or saving benefits to clients and less operational benefits. Liquidity is very robust with high share of core deposits and capital ratios are in tandem with profitability and growth. Demand for mortgages is healthy, and we continue to follow our strategy to retain our market share in the market. During the year, we continue to build the portfolio for the expected rate reduction. We think that it is reasonable to assume that today's balance sheet growth would materialize in the coming quarters, and we do expect to see further responsible credit growth in coming quarters. We will distribute 50% of Q4 profits as dividend. To conclude, our key takeaways for 2025 are as follows: strong financial results in line with the strategic plan despite the geopolitical environment and lower inflation, significant credit growth across all segments. It is worth noting that credit to the public crossed ILS 400 billion for the first time. Solid balance sheet mix with credit quality metrics continue to be healthy, effective expense side control and 50% dividend distribution alongside 17% return on equity in line with the strategic plan. All in all, I think we are following our effective path and accommodating to the new environment. I would like to thank you very much for your attention. And with that, I leave you with the hands of Mr. Menahem Aviv, our Chief Accountant.

Thank you, Mr. Shachaf. I will review the main figures from the financial statements and are as follows: The net profit in 2025 reached ILS 5.630 billion compared with ILS 5.455 billion in 2024. The return on equity in 2025 reached 17%. The equity amounted ILS 34.8 billion. The total revenues in 2025 reached ILS 14.6 billion. Financing revenues from current operations in 2025 reached ILS 11.3 billion. Provisions loans to the public, the ratio -- the ratio of provision to loans in 2025 reached 0.06%. Operating and other expenses in 2025 totaled ILS 5.2 billion. The main balance sheet items development are as follows: Total assets grew by 13.5%, loans to the public by 11.9% and deposits from public by 14%. The ratio of Tier 1 capital to risk elements reached 10.24% and the total ratio reached 13.05%.

Thank you very much. We can go to Q&A.

[Operator Instructions] The first question is from Chris Reimer of Barclays.

Congratulations on the strong results. First, I'd like to touch on the credit growth, very impressively strong. When you look at the credit growth, where do you think this is really coming from? Is it that you're just offering more competitive rates? Or is it demand that just previously hasn't been picked up? Any comments around what you're seeing there?

Sure. So let's start with the demand. We do see a very strong demand for credit in the Israeli market, not just for ourselves. And like I was saying before, we see it along almost all asset classes. So for us, it comes from mortgages from one side and even more so from the credit side, both big corporates and middle market. We do see prices in the current environment behaving in a very competitive environment. As I was saying, we see demand from all banks. We are happy we were able in 2025 to retain our market share in the mortgage market, even slightly increase it, but our strategy was to retain our market share. And on the corporate side, we grew around 20% on the corporate credit. So again, we haven't seen the other guys' results, but we assume that during 2025, we were able to increase slightly our market share.

And how do you feel you're positioned now with your market share in the business segments given that you had previously announced that was one of your target areas to gain share there. How do you feel you're positioned there now? And do you feel you have further to go to increase this segment?

Yes. As noted in our strategic plan, we do plan to further increase our market share in the corporate credit arena. Again, increasing our market share, still, we would not be the biggest market share holders in corporate credit, but we do think we will be able to increase our market share on the corporate side while retaining our market share on the mortgage side.

That's helpful. And just one last one. How should we be looking at the special tax going into this year? Because I don't think it's been decided yet. So will you be making a provision? Or is there a wait-and-see kind of approach? If anything you could clarify on the special tax going forward?

No, we haven't made a provision. We'll have to wait and see what would be decided on the parliament and once if a new law would be legislated, then of course, we will behave accordingly.

The next question is from Canberk Benning of Citigroup.

Just 2 questions from me. Number one on cost efficiency. One of your targets is to bring the average cost/income ratio down to below 35% over the 3-year plan. I'm just wondering, you were a little bit above that in 2025. I'm just wondering what sort of plans do you have to implement cost efficiencies going forward to ensure that target does fall below 35% average? And then the second question, just the evolution of the NIM. I'm wondering as bank rates come down, the policy rate comes down, inflation comes down, do you see that NIM being compressed going forward? And how will that sort of affect the profitability going forward?

Sure. So as for the first question regarding the cost/income ratio, so you're absolutely right. Our target is to be below 35% hurdle for the average of the 3 years. We finished this year at 35.9%. We do see room for further improvement there in the next 2 years. And we will, of course, try as hard as we can to achieve our average target. I can say that we are quite happy with the expense side control for this year in 2025 if we compare it to 2024. As for your second question on the NIM, so what you've seen in 2025 is that NIM were lower. We do look also on adjusted NIM without CPI in order for us to better see where are the sources of the NIM compression. So of course, CPI, not just in the quarter in 2025 was lower than 2024, so it contributed less. On the other side, we got compensated by the growth. And another aspect that affected the NIM and maybe would affect also in 2026 would be the amount of rate reduction. So far, it is in line with what we assumed in the strategic plan, but we'll have, of course, to wait and see where will 2026 end. So all in all, there are a couple of vectors going there. We see a similar phenomenon also in the corporate bond market that when rates were high, spreads were lower and then they get to a certain point. And sometimes when rates go lower, then you see a partial compensation, but we'll have to wait and see how the market will behave there.

There are no further questions at this time. This concludes the Mizrahi Tefahot Bank Ltd. Fourth Quarter 2025 Results Conference Call. I'm sorry, we have another question now. The next question is from Valentina Stoykova of Barclays Capital.

I have 2 follow-up questions, actually. One is on your CET1 ratios. I've seen that your CET1s have fallen quite a bit year-on-year and the buffers are on the thinner side now. So I was wondering where you see your optimal capital buffers and how you plan to get there? And then my other question is regarding your asset quality and cost of risk trends. If you can give us a little bit color on how you see cost of risk developing this year, where you see cost of risk this year and where -- how it compares with your normalized cost of risk?

So as for the Tier 1 capital ratio also we went up from last quarter to this quarter. Now we are at 10.24%, which is the areas between 10.1% to 10.3% are our typical areas in the last couple of years, and we feel comfortable there. We do -- because of our big mortgage tilt in the balance sheet, and the way in Israel, we have to account for risk assets on mortgages, which is much more conservative than in typical European countries, we feel very comfortable staying with this region where we used to be. As for your second question regarding the asset quality. So as you can see from provisioning and even from the reduction on the mortgage side of nonperforming loans, we feel quite confident. And so far, during the entire 2 years plus of the war, we haven't seen any material risk credit deterioration. And we were allocating since the beginning of the war, I think, very conservative collective provisioning. So you can see from the provisioning now that so far, the asset quality has been in place.

There are no further questions at this time. This concludes the Mizrahi Tefahot Bank Ltd. Fourth Quarter 2025 Business Results Conference Call. Thank you for your participation. You may go ahead and disconnect.